Core Insights - Alaska Air has faced a challenging year with a stock price decline of 15%, underperforming the S&P 500's 15% increase and its competitors [2][3] - The company has revised its third-quarter 2025 earnings forecasts, now expecting adjusted earnings per share at the lower end of the previous range of $1.00 to $1.40, raising investor concerns [3] - Despite recent challenges, Alaska Air's stock is considered appealing at approximately $55, supported by strong operational and financial metrics [4][16] Financial Performance - Alaska Air's revenues have increased significantly, with a 27.8% rise from $11 billion to $13 billion in the last 12 months, compared to a 5.1% growth for the S&P 500 [14] - The company reported quarterly revenues of $3.7 billion, up 27.9% from $2.9 billion a year ago, while the S&P 500 saw a 6.1% improvement [14] - Operating income for the last four quarters was $806 million, reflecting a low operating margin of 6.0% compared to 18.6% for the S&P 500 [14] - Net income stood at $313 million, resulting in a net income margin of 2.3%, significantly lower than the S&P 500's 12.7% [14] Valuation Metrics - Alaska Air has a price-to-sales (P/S) ratio of 0.5, compared to the S&P 500's ratio of 3.3, indicating it is undervalued relative to the broader market [8] - The price-to-earnings (P/E) ratio stands at 20.9 versus the S&P 500's 24.0, further supporting the notion of a favorable valuation [8] - The stock is trading at only 0.5 times its trailing revenues, lower than its five-year historical average of 0.9 times [13] Financial Stability - Alaska Air's balance sheet appears solid, with total assets of $20 billion and cash (including cash equivalents) of $2.1 billion, resulting in a cash-to-assets ratio of 10.7% compared to 7.0% for the S&P 500 [14] - The company's debt is $6.4 billion, with a market capitalization of $6.5 billion, leading to a moderate debt-to-equity ratio of 97.6% compared to 21.0% for the S&P 500 [14] Market Resilience - Alaska Air's stock has shown weaker performance during economic downturns compared to the S&P 500, with significant declines observed during past market crises [11][15] - The stock has experienced a peak-to-trough decline of 57.9% from a peak of $73.74 on April 6, 2021, to $31.08 on November 1, 2023, while the S&P 500 saw a peak-to-trough drop of 25.4% [15]
Alaska Air: Should You Buy ALK Stock At $55?